CARMAX INCKMX
CARMAX INC Income Taxes Disclosure
INCOME TAXES
Income Tax Provision
| Years Ended February 28 or 29 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2026 | 2025 | 2024 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| (In thousands) | Current | Deferred | Total | Current | Deferred | Total | Current | Deferred | Total | ||||||||||||||||||||||||||||||||||||||||||||
| Federal | $ | 39,579 | $ | 71,014 | $ | 110,593 | $ | 156,819 | $ | (22,253) | $ | 134,566 | $ | 140,480 | $ | (6,542) | $ | 133,938 | |||||||||||||||||||||||||||||||||||
| State | 22,764 | 2,786 | 25,550 | 35,709 | (1,471) | 34,238 | 26,711 | 1,742 | 28,453 | ||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | 62,343 | $ | 73,800 | $ | 136,143 | $ | 192,528 | $ | (23,724) | $ | 168,804 | $ | 167,191 | $ | (4,800) | $ | 162,391 | |||||||||||||||||||||||||||||||||||
Income Tax Provision and Effective Tax Rate Reconciliation
| Years Ended February 28 or 29 | ||||||||||||||||||||||||||
| 2026 | 2025 | 2024 | ||||||||||||||||||||||||
| (In thousands) | $ | % | $ | % | $ | % | ||||||||||||||||||||
| Federal tax at statutory rate | 80,521 | 21.0 | 140,566 | 21.0 | 134,735 | 21.0 | ||||||||||||||||||||
| Domestic federal: | ||||||||||||||||||||||||||
| Effect of changes in tax laws or rates enacted in the current period | 3,273 | 0.9 | — | — | — | — | ||||||||||||||||||||
| Tax credits: | ||||||||||||||||||||||||||
| Research and development credit | (4,158) | (1.1) | (5,426) | (0.8) | (4,179) | (0.6) | ||||||||||||||||||||
| Purchased tax credits | (4,468) | (1.2) | (5,777) | (0.9) | — | — | ||||||||||||||||||||
| Other credits | (115) | — | (63) | — | (375) | (0.1) | ||||||||||||||||||||
| Changes in valuation allowances | (10) | — | 55 | — | (117) | — | ||||||||||||||||||||
| Nontaxable or nondeductible items: | ||||||||||||||||||||||||||
| Executive compensation | 6,055 | 1.6 | 7,238 | 1.1 | 5,786 | 0.9 | ||||||||||||||||||||
| Goodwill impairment | 29,564 | 7.7 | — | — | — | — | ||||||||||||||||||||
| Other nontaxable or nondeductible items | 3,242 | 0.8 | 2,840 | 0.4 | 2,873 | 0.4 | ||||||||||||||||||||
Other (1) | 2,384 | 0.6 | 3,449 | 0.5 | 1,367 | 0.2 | ||||||||||||||||||||
Domestic state and local income taxes, net of federal effect (2) | 20,713 | 5.4 | 26,841 | 4.0 | 23,495 | 3.7 | ||||||||||||||||||||
| Changes in prior year unrecognized tax benefits | (858) | (0.2) | (919) | (0.1) | (1,194) | (0.2) | ||||||||||||||||||||
| Income tax provision and effective tax rate | 136,143 | 35.5 | 168,804 | 25.2 | 162,391 | 25.3 | ||||||||||||||||||||
(1)Includes the federal tax impact of share-based compensation.
(2)For fiscal 2026, state and local taxes in California, North Carolina and Illinois made up the majority of the tax effect in this category. For fiscal 2025, state and local taxes in California, Illinois, Florida and North Carolina made up the majority of the tax effect in this category. For fiscal 2024, state and local taxes in California, Illinois and Texas made up the majority of the tax effect in this category.
Temporary Differences Resulting in Deferred Tax Assets and Liabilities
| As of February 28 | |||||||||||
| (In thousands) | 2026 | 2025 | |||||||||
| Deferred tax assets: | |||||||||||
| Accrued expenses and other | $ | 85,878 | $ | 98,861 | |||||||
| Allowance for loan losses | 110,197 | 111,385 | |||||||||
| Net operating loss carryforwards and other tax attributes | 22,299 | 24,462 | |||||||||
| Operating lease liabilities | 131,003 | 136,190 | |||||||||
| Share-based compensation | 55,798 | 51,284 | |||||||||
| Capital loss carryforward | 752 | 766 | |||||||||
| Total deferred tax assets | 405,927 | 422,948 | |||||||||
| Less: valuation allowance | (752) | (766) | |||||||||
| Total deferred tax assets after valuation allowance | 405,175 | 422,182 | |||||||||
| Deferred tax liabilities: | |||||||||||
| Intangibles | 35,375 | 39,317 | |||||||||
| Prepaid expenses | 11,142 | 11,810 | |||||||||
| Property and equipment | 148,019 | 82,285 | |||||||||
| Operating lease assets | 115,479 | 123,520 | |||||||||
| Inventory | 15,236 | 11,924 | |||||||||
| Derivatives | 1,445 | 12,994 | |||||||||
| Total deferred tax liabilities | 326,696 | 281,850 | |||||||||
| Net deferred tax asset | $ | 78,479 | $ | 140,332 | |||||||
As of the fiscal year ended February 28, 2026, CarMax’s net operating loss carryforwards and other tax attributes include a deferred tax asset of $5.4 million related to U.S. federal tax credit carryforwards, which expire between 2026 and 2042; a deferred tax asset of $2.1 million related to state net operating loss carryforwards, which expire between 2026 and 2039; and a deferred tax asset of $13.2 million related to state tax credit carryforwards that have no expiration.
Except for amounts for which a valuation allowance has been provided, we believe it is more likely than not that the results of future operations and the reversals of existing deferred taxable temporary differences will generate sufficient taxable income to realize the deferred tax assets. The valuation allowance as of February 28, 2026 relates to capital loss carryforwards that are not more likely than not to be utilized prior to their expiration.
Reconciliation of Unrecognized Tax Benefits
| Years Ended February 28 or 29 | |||||||||||||||||
| (In thousands) | 2026 | 2025 | 2024 | ||||||||||||||
| Balance at beginning of year | $ | 18,035 | $ | 28,817 | $ | 27,092 | |||||||||||
| Increases for tax positions of prior years | 2,667 | 138 | 397 | ||||||||||||||
| Decreases for tax positions of prior years | (1,276) | — | (172) | ||||||||||||||
| Increases based on tax positions related to the current year | 2,723 | 4,669 | 3,627 | ||||||||||||||
| Settlements | (951) | (142) | (386) | ||||||||||||||
| Lapse of statute | (2,352) | (15,447) | (1,741) | ||||||||||||||
| Balance at end of year | $ | 18,846 | $ | 18,035 | $ | 28,817 | |||||||||||
As of February 28, 2026, we had $18.8 million of gross unrecognized tax benefits, $12.3 million of which, if recognized, would affect our effective tax rate. As of February 28, 2025, we had $18.0 million of gross unrecognized tax benefits, $14.9 million of which, if recognized, would affect our effective tax rate. As of February 29, 2024, we had $28.8 million of gross unrecognized tax benefits, $12.1 million of which, if recognized, would affect our effective tax rate.
On July 4, 2025, federal legislation commonly referred to as the One Big Beautiful Bill Act (“OBBBA”) was enacted in the United States. The OBBBA includes provisions that make 100% bonus depreciation permanent, allows for the expensing of domestic research costs and modifies the business interest expense and charitable contribution expense limitation calculations. These changes were incorporated into our income tax provision for the fiscal year ended February 28, 2026, resulting in an increase in our deferred tax expense, offset by a corresponding decrease in our current tax expense. The OBBBA did not have a material impact on our fiscal 2026 effective tax rate.
Our continuing practice is to recognize interest and penalties related to income tax matters in SG&A expenses. Our accrual for interest and penalties was $6.0 million, $3.8 million and $5.3 million as of February 28, 2026, February 28, 2025 and February 29, 2024, respectively.
CarMax is subject to U.S. federal income tax as well as income tax of multiple states and local jurisdictions. With a few insignificant exceptions, we are no longer subject to U.S. federal, state and local income tax examinations by tax authorities for years prior to fiscal 2023.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2026 | Apr 15, 2026 | Showing above |
| 2025 | Apr 11, 2025 | |
| 2024 | Apr 15, 2024 | |
| 2023 | Apr 13, 2023 | |
About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.